SG Hospitality - OCBC Investment 2017-01-17: A closer look at Chinese visitors growth

SG Hospitality - OCBC Investment 2017-01-17: A closer look at Chinese visitors growth Singapore Hospitality Sector OUE HOSPITALITY TRUST SK7.SI ASCOTT RESIDENCE TRUST A68U.SI CDL HOSPITALITY TRUSTS J85.SI

SG Hospitality - A closer look at Chinese visitors growth

  • Trends in Chinese arrival patterns.
  • Jan-Nov ‘16 visitor days up 2.2% YoY.
  • Opportunities for dollar-cost averaging.

Shift in Chinese visitor arrival patterns towards arrival by land 

  • An important driver of demand growth last year, Chinese arrivals by air have nonetheless shown a rough trend of increasingly modest growth numbers from the start of 2016 – falling from +62.3% YoY growth in Mar to -3.3% in Oct 2016, before rebounding with +14.5% growth in Nov 2016. +25.6% YoY growth was clocked for the Jan-Nov 2016 period. 
  • While Chinese arrivals by land have shown a similar trend of moderation, YoY growth has still been at least double-digit each month and +93.6% YoY for the Jan-Nov 2016 period. These patterns have resulted in the latter now making up a larger proportion of total Chinese travelers. 
  • The proportion of Chinese travelers who came by air and land were 72% and 25% respectively for Jan-Nov 2016 (the remainder travelled by sea); the corresponding proportions were 78% and 18% for 2015.

Possible explanation may be change in flight patterns 

  • One possible explanation for the above may be an ongoing change in flight patterns in the past three years. 
  • According to CAPA statistics, the number of long-haul flights from Chinese cities to Australia has grown rapidly since 2013. Many of these are operated by Chinese carriers that may conduct non-stop flights or choose to use other cities as opposed to traditional transit hubs such as Hong Kong and Singapore. 
  • Nonetheless, we believe that the risk of this sub-set of stop-over travelers being further eroded is very minimal to the hospitality industry at this point in time; we estimate that these travelers make up only around ~0.5% to ~2% of total arrivals from all countries to Singapore.

Maintain NEUTRAL on the sector 

  • We note the probable case that not-an insignificant proportion of Chinese arrivals are inevitably double-counted should they use Singapore as a base to explore Southeast Asia, and re-enter the country at the end of their tours to fly home. For this reason, the growth of Chinese arrivals may be more volatile than their corresponding impact on visitor days. 
  • Total Jan-Nov 2016 visitor days for all countries are currently up 2.2% YoY v. 7.9% growth for visitor arrivals in the same period. 
  • As we continue to monitor industry developments, we believe 2017 looks to be another tough operating year with the supply injection and moderating growth in Chinese arrivals, but there are good opportunities for dollar-cost averaging before the industry stabilizes in 2018. 
  • We are positive on OUE Hospitality Trust (OUEHT) [BUY; FV: S$0.73], as well as geographically-diversified Ascott Residence Trust (ART) [BUY; FV: S$1.24] and CDL Hospitality Trust (CDLHT) [BUY; FV: S$1.48]
  • Maintain NEUTRAL on the sector

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-01-17
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